MACROPRUDENTIAL STRESS TESTING UNDER GREAT UNCERTAINTY

Luis de GUINDOS

Financial Stability Review, 2021, 17-28

Abstract: First used as a crisis solution tool to identify and quantify capital shortfalls, stress testing gradually became a prevention tool, aimed at identifying vulnerabilities in the financial system. Because stress testing exercises accommodate a broad range of scenarios, they provide regulators with answers on questions with a high degree of uncertainty like the Covid crisis. Two types of stress testing exercices coexist: microprudential ones, which aim at identifying individual banks vulnerabilities, and macroprudential ones, which consider the banking sector as a whole. The latters incorporate banks dynamic adjustements, the interaction between banks and the real economy, and the interconnection with non-banks. New directions for macroprodential stress testing include the climate risk, and the modelling of interactions between individual institutions.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:fisrev:2021:24:3

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